Barclays Dark Pool Volume Fell 66% Week After Lawsuit

By Richard Partington -
Jul 21, 2014

Barclays Plc (BARC) saw the number of U.S. shares traded in its dark pool decline for a second week after it was sued by New York for allegedly lying to customers.

About 66 million U.S. shares were traded in the dark pool in the week of June 30, down 66 percent from about 197 million in the previous week, according to data from the Financial Industry Regulatory Authority. The drop follows a 37 percent decline from 312 million in the previous week, data show.

Barclays lied to customers and masked the role of high-frequency traders as it sought to boost revenue at one of Wall Street’s largest private trading venues, New York Attorney General Eric Schneiderman said in a complaint filed June 25. Barclays Chief Executive Officer Antony Jenkins, in a memo to employees following the lawsuit, said the bank will “quickly and decisively” deal with any wrongdoing.

The stock fell 0.8 percent to close at 210.20 pence in London. The shares have dropped 23 percent this year, making them the worst performers among Britain’s five largest banks.

Barclays fell from second place behind Credit Suisse Group AG (CSGN) as the largest dark pool operator in the U.S. to 12th, the Finra data show. Credit Suisse, which remains No. 1, saw a 19 percent drop in the number of shares traded in that week.

Barclays didn’t respond to e-mails seeking comment.

‘Driving Profits’

Jenkins, who took over from Robert Diamond in August 2012, is seeking to focus on equities, while cutting fixed income, currencies and commodities trading to restore investor confidence in the wake of a series of scandals. Diamond resigned following a 290 million-pound ($495 million) fine for rigging the London interbank offered rate.

Expanding its dark pool was a “principal goal” of Barclays’s equities electronic trading division and “central to driving profits,” Schneiderman said in his complaint.

Barclays has said it’s cooperating with Schneiderman’s office and is examining the matter internally. The bank temporarily removed Bill White from his role overseeing electronic equities trading last month to focus on the bank’s response to the lawsuit, according to a person briefed on the matter. White isn’t being suspended, the person said.

The bank acquired the alternative trading venue in 2008 as part of its acquisition of Lehman Brothers Holdings Inc.’s New York-based operations. Under White, the dark pool, known as Barclays LX, moved from the fifth-largest pool operating in the U.S. in 2011 to second after Credit Suisse three years later, according to data compiled by Rosenblatt Securities Inc.

Safe Place

The exchange uses computer algorithms to match buyers and sellers without identifying them until after a trade has been completed. Barclays encouraged customers its dark pool was a safe place to trade, according to Schneiderman’s complaint.

Dark pools and high-frequency traders are finding little support among financial professionals amid criticism from books and Congress, responses to a Bloomberg Global Poll show. At least half the respondents to the poll published today professed a negative view of the anonymous equity markets and proprietary firms that buy and sell stocks in millionths of a second.

Barclays has until July 25 to reply to the attorney general’s civil complaint.